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perfect competition firm curve
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perfectly elastic (horizontal)
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Monopolistic demand firm curve
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relatively price-inelastic (downward sloping)
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Monopoly
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Price > MR
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perfect competition
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Price = MR
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market demand curve
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same for both monopoly and perfect competition (downward sloping)
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economic profit
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(Price-ATC)*Quantity
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to find profit in monopoly
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find where mc=mr, then use price from demand curve
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In perfect competition, market equilibrium is when
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MC = D (MC aka supply curve)
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price discrimination
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D=MR
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single-price monopolist to maximize profit
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price is always higher than ATC & MR = MC
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long-run profit
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no profit or loss in. long-run perfect comp
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Nash Equilibrium
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best outcome based on other's decision
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oligoppoly
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MR is downward-sloping
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single-price monopoly creates deadweight loss because
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it restricts output
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single-price monopoly creates a
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smaller consumer surplus & a larger economic profit
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at exactly zero economic profit
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owner makes an income equal to his best alternative forgone income
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Law of Diminishing Marginal Returns
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as firm uses more of a variable, with a given quantity of foxedc outputs, the marginal product of the variable input decreases
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normal profit
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the profit that an entrepreneur earns on average
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Monopolistic Market
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inefficient relative to competitive equilibrium
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Minimum ATC point
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aka break-even point
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Minimum AVC point
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aka shutdown point
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Economies of Scale
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falling L-R avg. costs as output increases
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diseconomies of scale
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rising L-R avg. costs as output increases
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constant returns to scale
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long-run average costs remains constant as it increases output
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Economic loss but stays in business when
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P below min. ATC but above min AVC
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Firms shutdown when
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P < AVC
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Economic Loss
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P < ATC
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Economic profit
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P> ATC
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When MC is below AVC
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AVC decrease (same for MC & ATC)
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When MC is above AVC
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AVC Increase (same for MC & ATC)
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MC curve always intersects the ATC & AVC curve at its...
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lowest point
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